Remember e-marketplaces -- those huge virtual trading rooms that were going to both replace and automate the process where companies and suppliers met and traded?

How time has flown these past three years. For the phrase "e-marketplace" is now so old-fashioned that using it'd be like still calling people "hip cats" -- or asking if someone can "dig" what you’re saying.

That may sound a bit harsh to the small but stalwart minority of companies that still follow the trend. And, boy, was it a trend for a while. Remember when (October 2000 to be precise) Gartner Group foresaw e-marketplaces would be a $2tn industry by 2005? To prove even the smartest people can sometimes get it badly wrong, fellow egg-heads IDC were still forecasting them doing $2.8bn worth of business by 2005 -- despite them doing a mere $800,000 worth of business between them all in the year of that prediction, 2001.

Turns out that $800,000 number wasn't, alas, that far off the mark for at least one metric of e-marketplace activity. For one-time e-marketplace poster boy and market leader, Commerce One, recorded just a little over that, $900,000, for licence sales of all its software in the third quarter just ended.

What went wrong?That somewhat anaemic figure compares pretty poorly with the $8.5m worth of licences the luckless firm sold in the same three months of 2002. This is from an outfit, remember, that saw its market valuation hit $21.5bn in March 2000.

What went wrong here? First off, let's make clear that there are still e-marketplaces, that some are doing fine, and that there are transactions going on in them. Market watchers AMR Research estimated earlier this year that e-marketplace software sales should expand 12 percent by 2004, to $946m, set to grow (it says) to a healthy $2.5bn.

Still, not quite $2tn, is it? What's confusing about throwing such big numbers around is that it can lose the underlying point: e-marketplace (release 1.0) hasn't been a big winner. But as with many things digital, the second release may be much more worthy of your attention.

How come? Let's review the story so far. E-marketplaces were super-hot for a short period in 2000. But by early 2001 Dell, e-commerce exemplar had already closed its market after four months, the start of a long crash that by late 2002 had shuttered the electronic doors of such hopefuls as e-cement.com, Mondus, and worldoffruit.com.

What went wrong? Well, some folks were plain greedy. Customers weren't that enthused when e-marketplaces wanted up to $30m for the privilege of connecting, and wanted a 4 percent cut on all their transaction.

A bigger factor: the big transaction numbers never happened. IDC estimates that even though business bought $200bn worth of goods and services off each other in 2002, just 20 percent of all B2B e-commerce went through e-marketplaces, with the rest happening via ordinary corporate Web sites. And the vast majority of that 20 percent goes through the two biggest e-marketplaces, the auto industry's Covisint and the aerospace industry's Exostar -- though others that seem to be bubbling along just fine.

Covisint and ExostarCovisint claims since it went live in 2001 it has processed over $150bn worth of goods, and has 25,000 companies registered. Exostar says $2bn worth of goods have passed through its SourcePass system in roughly the same time. Similar signs of e-marketplace health include a forum called the Open Network for Commerce Exchange, which last year said its 18 e-marketplace members had all increased their transaction rates, and expected to continue to do so.

And then there are even new ones still coming on-stream -- such as Aquadia, a water-industry site set up in September 2002 by Thames Water and Suez. And vendors like Sterling Commerce and GXS (Global eXchange Services) do reasonable business continuing to set up and operate hubs and marketplaces. Ariba, Commerce One's rival, claims over 450 international companies are customers, linked by their software to a further 20,000 suppliers.

So, time to invest in e-marketplace stocks again? Not even with your tongue firmly in cheek. Even companies that are doing reasonably well in the space, such as Ariba, caution that the model has shifted. No one -- especially users -- expects to sign on to a big e-marketplace and save fortunes. "There's a new e-marketplace business model, giving value to members, but without significant expectations of high volumes," explains Ariba's European VP of marketing, Steve Muddiman.

Instead, e-marketplaces 2.0 are all about exchanging information that can add value, he says. "Companies have more sorts of relationship with suppliers and customers than ones based on just price. The successful marketplaces are those offering data on complex categories relevant to their specialist members -- we've come a long way from straight reverse auctions."

A good example here would be Spain's LeatherXchange e-marketplace, which successfully backed off from trying to be a buying and selling arena to offering specialist information like current market pricing data and other such nice-to-have's -- things users want much more.

Lack of standardsWe mentioned low transaction throughput earlier. Of course another big obstacle to e-marketplaces was lack of standards. And before you mention 'XML', well, therein lies the rub. Such is the view of Pieter Eksteen, European product manager for business process management specialist Commerce Quest: "A severe lack of standards -- or rather a plethora of standards, like all those XMLs we know have to choose from -- has been a big barrier to more business-to-business exchanges taking off."

A reasonable position might be that when Web services and more practical information exchange languages like Microsoft-IBM's BPEL (Business Process Exchange Language) come on stream, we can expect more marketplace activity.

Not everyone's so convinced. Ilidio Ferreira, senior analyst at UK-based consultancy Ovum, says: "I don't expect the marketplace to change that much in the next couple of years. In many ways the respectable e-marketplace business there is out there is really just a part of integration work being done by big firms, and may become just a subset of that. Service Oriented Architecture will make applications in general more open, but not for some time yet."

The verdict's clear: until we have real Web services, the jury's still out on mission-critical B2B trading taking off. Still, isn't it ironic that as we all spend so much online in the B2C space this holiday season -- the Royal Mail predicts £3.3bn worth of UK Xmas presents will be ordered online this year, while global e-tail tracker IMRG says UK November online shopping was up 44 percent year on year -- B2B, once heralded as where the real action would happen for e-commerce, is still lagging behind Joe Public in terms of acceptance of buying and selling in cyberspace?

Thank You

By registering you become a member of the CBS Interactive family of sites and you have read and agree to the Terms of Use, Privacy Policy and Video Services Policy. You agree to receive updates, alerts and promotions from CBS and that CBS may share information about you with our marketing partners so that they may contact you by email or otherwise about their products or services.
You will also receive a complimentary subscription to the ZDNet's Tech Update Today and ZDNet Announcement newsletters. You may unsubscribe from these newsletters at any time.